Did the retail sales data changed the outlook for the GBP?

Posted Friday, August 19, 2016 by
Skerdian Meta • 2 min read

From day one after the Brexit referendum, the GBP has been dumped continuously. The forex market has been very harsh with this currency as it has lost more than 20 cents in all forex pairs which include the GBP. GBP/USD broke below 1.30 several times but USD weakness this week prevented it from falling any further. 

But, the inflation numbers on Tuesday suddenly jumped up, helped by imported inflation due to the decline in the value of the GBP. Yesterday though things became more interesting when the UK retail sales jumped by 1.4%. Yes, good weather in the UK and the cheaper Pound might have attracted tourists, particularly from Europe, but a big and developed economy cannot survive on tourists alone and the jump was pretty big to be accredited totally to tourism. 

So, the main factor left is the domestic demand. Sure, business are worried about the uncertainties that Brexit might bring, so they hold on investments. The economic data which reflects the business side has shown the panic, as the economic activity has decreased. The business data has been getting worse since Brexit referendum and different sectors of business activity have fallen in contraction. 

The consumer data on the other hand, remains upbeat, as the retail sales numbers showed. After all, life is still the same for the ordinary Britton. People won´t just quit living, they are still going to eat, buy furniture, buy clothes, buy gas/fuel, go out, socialize etc. Right now the business fears haven´t yet filtered through to the consumer, but might catch up soon if we see stagnation in the wages and then job cuts. 

This forex pair surged more than 100 pips higher after the retail sales data showed a nice jump

But what does it mean for the GBP? As we said above the GBP has been feeling really weak lately. But it surged after the retail sales data. This might change the outlook for the GBP in the short/mid term, maybe for a few months. That´s because many forex traders were short on the GBP and many market analysts predicted an apocalypse on the British economy and the GBP. Now that things look normal again, at least for a couple of months, it would be harder for the sellers to push further down. So, GBP/USD will be more balanced around the 1.30 level for some time, unlike some predictions which saw this forex pair at 1.20 in a couple of months.  

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